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Trade secret and non-competition lawsuits in the energy industry

Trade secret and noncompetition lawsuits are common in the energy industry because non-public technology and the need to protect it can be important to an energy company’s success. One example of such a lawsuit is C&J Energy Services, Ltd. v. McCoy, filed in the Harris County District Court.

The case was spurred by Keane Group’s hiring of C&J’s former senior vice president and general manager. McCoy had moved from managing C&J’s coiled tubing business to leading Keane Group’s coiled tubing business. (Coiled tubing is metal pipe supplied spooled on a large reel and is often used to carry out various downhole activities such as operations similar to wire lining.) Shortly after relocating to Keane Group and after allegedly assuring C&J that he had no intention of joining a competitor, McCoy relocated to Keane Group, followed shortly by six managers and engineers in C&J’s coiled tubing operation.

C&J’s petition sought an injunction against McCoy that would prohibit him working in Keane Group’s coiled tubing business. In support of its request, C&J pointed to the fact that McCoy had executed six separate two-year non-compete agreements when he received stock and stock options. Citing a concern that McCoy would inevitably disclose trade secrets, C&J asked not only for a temporary restraining order that would prohibit McCoy from working for Keane Group but also barring McCoy from soliciting C&J employees for positions with the Keane Group. The court granted a temporary restraining order but struck from the proposed order the language that would have prohibited McCoy’s solicitation of C&J employees. The lawsuit was quickly settled but the terms of the settlement do not appear to be publicly available.

The lawsuit implicated two Texas statutes—the Texas non-compete statute and the Texas Uniform Trade Secrets Act (TUTSA). Under the non-compete statute, the non-competition agreement must be ancillary to or part of an otherwise enforceable agreement. This means that the agreement must have some other purpose than simply restraining an employee’s right to compete, in order to receive employment or a salary. Rather, the non-compete must also involve some additional consideration such as access to trade secrets. A covenant not to compete must also contain reasonable limitations on its duration and geographical scope, as well as the scope of the activities that are restrained. The idea here is that the employee, upon leaving, should not be restrained from working in geographic areas or areas of the business that he had not been involved with while working for the prior employer. The duration should bear some reasonable relation to the period of time in which the trade secrets the employee learned would give a competitive advantage. While it is often said that non-competes are difficult to enforce in Texas, this case demonstrates that Texas courts will enforce a reasonable non-competition agreement, especially when necessary to protect a threatened misappropriation of trade secrets.

The Court’s ruling is also noteworthy in its determination that TUTSA adopts the “inevitable disclosure” doctrine. Under that doctrine, employers can seek relief when it is “inevitable” that a former employee possessing trade secrets will access that information, perhaps unintentionally. Some commentators view the language of TUTSA permitting “actual or threatened misappropriation (to) be enjoined” as an adoption of the inevitable doctrine, however, the Texas Supreme Court has not yet so ruled and lower courts and courts in other states have been divided on this issue.